| Grhog - 2/16/2018 18:39
Thanks J.P. Nice distinction between the two. Sorry about the ambiguous question, but I was just asking about the true value of technical charts. Do they have distinct verifiable profit in monitoring the past? I am biased fundamentals and trying to justify another look at charting. The only trades I make are there to offset risk on the physical. No speculating so I guess I do not fit the definition of a trader (traitor) unless you are talking politics. Haha.
Hi Grhog,
Good questions. I think your bias showed through with " Do they have distinct verifiable profit in monitoring the past?" They are - like so many have made the point - 20/20 in hindsight. I presume you meant "monitoring IN the past?" Let's investigate this a bit, because it is really interesting topic. All the technical analysis techniques I know of, from lines to EW, to squiggly lines are all able to put up against a database and be tested before a dollar of risk is ever put on. Median lines are a prime example. The 80% number was found the hard way initially. But since computers have been developed, they were retested, and they stand up. It's probabilities are time tested fact. Another example would be taking the a popular moving average cross that so many reference, put it on any chart, any time frame, and any symbol and run it historically to look at the statistics. Out of that we know instantly is there merit in such an idea, or is it garbage. Here are the performance stats for that moving average system I was asked to back test awhile ago. It is plain as day that the system is will not stand the test of time on the simple back test run, so there is absolutely no need to run more rigorous out of sample testing. And this type of thing can be done on anything technical - maybe not by a computer system, but no matter how it's done, there are defined parameters that are used to test the technique that are used to test yet unknown outcomes. There were even times when the system killed it, but if you followed the system day in and day out, the facts are, you will blow up your account. So then it becomes a matter of filtering it somehow, cycles, seasonals, ...other indicators, or maybe just plain talent. Either way, there are known parameters involved.
So now I will ask you, How do you know that fundamentals have a distinct verifiable profit in the past? I will give you that if say the Argentina bean crop goes to 30MMT, price will be higher. But what value is that today? Do we know that parameter for sure?? Do we know what next months weather will be? Do we know what unexpected political unrest may occur in that region? I would submit, no. It's all opinion. Well, how can you verify the value of an opinion when even on this board, you have a complete range of opinions? You can't. You can go back and say, yep the bean crop was thought to be short in 2018 in Argentina that caused the price to go here. Then it rained, the crop actually ended up at 52 MMMT, and that is why price topped, and it went lower - in hindsight - but how can use that in the future?. In this case, the bean crop was never 30MMT, it was just an opinion that it could happen. Here's a prime example that of the difference in technical versus fundamental. The fundamentalists like to point to the drought in 2012 as being the reason corn went to 8.50 . Yet, the true size of the crop was not known for 6 months after the top of the market and the market was much lower then. So, what number was actually the crop size "opinion" at that time? But via the technical side, 6 months before the high, price had stored the energy supply and projected where price should go. And because it is a technical and has defined parameters, it can be tested and verified and you knew before the move ever started, how far the rally should go. It might fail, they do on occasion, but just knowing where price should go, and that a failure occurred, tells you that things are probably going to be uglier than most can conceive. Again, insight into the future because there were defined parameters and known probabilities. So comparing technical and fundamentals is like comparing apples and oranges. One is using definable parameters, probabilities to project what should happen in the future. The other is using popular opinion to say what could happen...or did happen in hindsight. Completely different things.. We always say that price - as defined by the fundamental laws of the universe - will never go where it doesn't have the energy to go. If it does something you don't expect, you got it wrong. It was not a freak event that occurred- the energy had to have come from somewhere. And since everything known is bound by these laws, using price, we can theoretically have insight into the future of all things related to that symbol, weather, currencies fluctuations, upcoming wars, exports, reports etc. Those of us that have formed these opinions, just didn't read a book and accept these concepts as gospel. It took countless hours of comparing conventional opinion that we believed at that time and watched price repeatedly work and little by little, the accepted ideas given to us by others, that we never tested ourselves, had to be reevaluated. Then you have to be willing to accept that if price does something you did not expect, you were wrong. It wasn't a freak event regardless the spin, it was there, and you miss read it, versus deflecting saying " well who could have known "X" would happen...... That can be a really tough pill to swallow sometimes.
Sorry for being long winded and hopefully I answered your questions.
Take care
Edited by J P 2/17/2018 10:48
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Charts and technical analysis
